Last year silver hugely underperformed gold. While the yellow metal ended the year at approximately the same level as it had ended 2013, silver plunged 18% from $19.50 to $15.97 over the period.

See: Gold great value protector in 2014 – silver not

Not for nothing is silver referred to as the ‘Devil’s metal’ or ‘gold on steroids’.  It is hugely more volatile than its sibling – however, last year’s underperformance was remarkable even so. Indeed during the year silver reached over $21 in July but the metal’s performance down to the year end was, to say the least, dismal – falling as low as $15.28 in early November. Silver is always reckoned to underperform gold in a downturn, but given gold was pretty well flat over the full year the drop in silver was far greater than investors might have expected. (Prices are London silver prices as recorded by the London Bullion Market Association).

While silver tends to underperform gold on the downside, it conversely tends also to outperform gold on the upside and gold’s start to the year will have been giving silver bulls a little hope. But the almost unanimous thumbs downs for the year for silver from mainstream precious metals analysts may be putting something of a damper on such hopes.

There were, however, a major anomaly in silver’s poor price performance over the year in that sales of American Eagle silver coins hit a new record in 2014 at around 44 million, eclipsing the previous record of 42.7 million in 2013, while reports of Chinese and Indian consumption have suggested that investment and industrial demand is at very high levels in both the East and the West which flies in the face of the price performance. There is also the suggestion that silver supply will be in a fairly substantial deficit in 2015 (assuming the largely unpredictable investment offtake remains strong). Silver’s fundamentals thus look to be good BUT in today’s precious metals markets real fundamentals seem to have little impact on prices which appear to be increasingly being driven by speculative trading on the futures markets.

On this latter point, there is certainly the possibility that some banks and financial institutions have been buying physical metal against the day that futures and physical markets turn strongly positive. The potential profits could be enormous if there is a strong market turnaround, which many feel is a probability, in the medium to long term.

On the other hand the strength in the general stock market, up until the last couple of days has made precious metals investment look a poor choice in comparison. Markets have been boosted by the unprecedented amount of liquidity being pumped in to try and ward off recession through ‘Quantitative Easing’ type programmes. While the U.S. Fed has effectively ended its most recent easing programme it is still obviously nervous that the markets will stutter and dive once the full effects of ending the easing programme begin to impact and consequently is not yet prepared to allow interest rates from their exceedingly low levels in case rate rises coupled with the end to monetary stimulation really spook the markets.

The Fed is also aware that the stock market is precarious and may have risen too far too fast (i.e. in a potential bubble situation) and is playing an exceedingly cautious game so as not to rock the boat. If markets do start to fall they could drop dramatically – the current six-year bull market may well have run its course and bull markets usually end with some very sharp falls indeed.

An end to any bull market is, of course, inevitable at some time and if a feeling becomes apparent that the bull market is indeed at or close to its top this could precipitate a move into precious metals as an asset class providing some investment insurance. And a move into gold, and a consequent rise in the gold price, could be all that silver needs to take off. If this should happen we could see some very sharp gains indeed.  Even a rise back to $20 would be a 20% plus increase from current levels. Some may well see that as a gamble worth taking.

Silver bulls, of course, are still looking for a return to its 2011 high of close to $50, and perhaps more. Some talk of a return to what they see as the historic gold:silver ratio (GSR) of 16:1 but, despite all the arguments to the contrary, ever since silver largely lost its monetary role a return to this level seems unlikely. There have only been two occasions in almost the past 100 years when silver did indeed return to this kind of level – in 1968 and 1980, and in both cases it was very short-lived. Otherwise the GSR has fluctuated between a little over 30 and 100, averaging around 50 plus and is currently near 74 – a high level which many feel suggests that silver is indeed due for a sharp price boost and bring the ratio down. Should the gold price make a sharp recovery, a return to a GSR of 50 or a little lower could be on the cards as the more volatile silver price gains traction.

So what are the prospects for this kind of upwards performance in 2015? Downside in the gold price over the year is generally seen as somewhat limited, although a further fall before a major recovery cannot be ruled out. This suggests that silver may well provide an interesting gamble (and a gamble it would be) on a gold price rise during 2015.  The downside in silver is fairly limited, although some observers still see a drop to around $13 if gold doesn’t pick up, but the upside potential if gold does improve in price looks as though it could be very positive. But be warned, silver has burnt many investment fingers in the past and no doubt will again in the future.